Overseas Headlines – October 12, 2017

U.S.:

U.S. producer prices increase; weekly jobless claims fall

U.S. producer prices rose in September as the price of gasoline recorded its biggest increase in more than two years amid hurricane-related production disruptions at oil refineries in Texas. Other data on Thursday showed applications for unemployment benefits dropped to a more than one-month low last week as the boost to claims in Texas and Florida from Hurricanes Harvey and Irma continued to unwind. While the storms impacted the data, there were signs of underlying strength in both wholesale inflation and the labor market, potentially leaving the Federal Reserve on track to raise interest rates again in December. The Labor Department said its producer price index for final demand increased 0.4 percent last month after rising 0.2 percent in August. Wholesale prices were also lifted by an increase in the cost of services. In the 12 months through September, the PPI jumped 2.6 percent. That was the biggest gain since February 2012 and followed a 2.4 percent jump in August. Wholesale gasoline prices soared 10.9 percent in September after increasing 9.5 percent in August. The increase was the largest since May 2015 and accounted for two-thirds of the 0.7 percent rise in the price of goods. The Labor Department said higher energy prices were likely the result of “reduced refining capacity in the Gulf Coast area due to Hurricane Harvey.”

Banks that want access to the European Union after Brexit need to set up more than an “empty shell” in the bloc, the region’s regulators warned on Thursday, a demand that could prompt a bigger shift in jobs and business from London. Taking its first official position on potential Brexit movers, the European Banking Authority warned against granting banks a foothold in the EU with letterbox-style operations. “Existing authorization standards should not be lowered,” the agency said, reiterating a similar precondition imposed by the European Central Bank. “‘empty shell’ companies should not be authorized.” “Firms should provide a clear explanation of the choices they are making in terms of the substance of the incoming entity,” said the EBA, which includes supervisors from around the 28-country European Union and the ECB. The statement addresses one of the biggest questions for international banks in London, many of whom are setting up bases in continental Europe or in Dublin to maintain EU access once Britain leaves.

The head of Brazil’s central bank on Tuesday defended a bill allowing the government to partially bail-out struggling banks as another step in efforts to strengthen the financial sector. Central Bank Governor Ilan Goldfajn confirmed the plan, originally reported by local press, in an audience with the Senate’s economic affairs committee on Tuesday, stressing a bail-out would be a measure of last resort. “We must have a plan for such occasions. If we don‘t, you all know who’s paying the bill,” he told senators. Under current law, the central bank may intervene directly in struggling financial institutions or call for their liquidation but no taxpayer money may be used to shore them up. Newspaper Valor Econômico said on Monday the government intended to change the current regulations. The central bank, which in Brazil is charged with bank oversight, would be allowed to choose between a variety of measures before resorting to a bail-out, according to the report. The new rules would address long-standing demands from the nation’s banks, bringing Brazil’s regulatory framework closer to that of major developed and emerging economies.